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May 29, 2024

Law Firm Structure and Governance

Question: 

We are a group of six partners that are in the process of leaving a well established firm in Los Angeles, California and will be starting our own firm. In our early planning we have been discussing how we will structure and manage the firm. You advise and suggestions would be most welcomed.

Response: 

Most smaller to medium sized law firms choose one of three fundamental varieties of management structure. These systems may be characterized as management by:

  1. Democracy
  2. A managing partner
  3. An executive or management committee.

Full Partnership – Full Partnership or All Partners –  Under a full partnership each member of the firm has an equal voice in management and is “just as needed” as others to act. Any decision must be concurred upon by all partners, and various administrative tasks may be assigned or rotated among partners. Notwithstanding the perceived benefits accruing to partners as the result of participating in firm management and “controlling their own destinies,” democratic firms traditionally progress more slowly and at a less profitable rate than firms governed under one of the other structural concepts.

Managing Partner – This approach is probably the most efficient form of managing a law firm. A strong managing partner is oftentimes referred to as a “benevolent dictator.” Authority and accountability for all firm matters may be controlled by one partner or a tightly knit group of dominant partners. Typically, a managing partner is the person who opens the office in the morning and closes it in the evening. He or she may be responsible for originating and retaining the firm’s major clients. The managing partner frequently receives all work assignments from clients and parcels work out to other partners and associates. The managing partner typically determines the partners’ and associates’ compensation and perquisites.

Executive or Management Committee – The executive or management committee structural concept is a representative form of governance typified by a committee of partners having defined authority, accountability and responsibility. In most smaller firms this committee, frequently consisting of three partners, may be responsible for recommending and implementing policy for the firm, planning for the future, appraising results and recommending corrective action, as required.
A three partner executive or management committee is frequently recommended to avoid deadlocks or inaction and to spread the burden of administration among appropriate partners. One of the partners should be designated to chair the committee. Each of the other members may be assigned authority, responsibility and accountability for coordinating and/or performing specific functions. For example, one partner may serve as the financial partner. This would involve responsibility for insuring the preparation and analysis of income and expense budgets and financial reporting. This partner would oversee attorney production, fees, collections, etc. A second partner may be responsible for the personnel functions including associate career development, i.e., employment, training, evaluation, etc., and implementation of policy for the administrative staff. A third partner may serve as the general administrative partner, and oversee the implementation of administrative policy, systems, automation, etc. These partners may be assisted by an office manager, bookkeeper, etc.

To preserve continuity in the management function, it is recommended that tenure of partners on the executive or management committee be staggered over a two or three year period. The executive committee should communicate with the partners regularly or as issues arise. The executive committee should meet weekly, or if that isn’t convenient, as frequently as required. To keep all of the partners apprised of issues before the executive committee meeting is held, it is recommended that the meeting agenda be distributed to all partners within 48 hours prior to the scheduled meeting. Partners should be encouraged to discuss, with members of the executive committee, any items listed on the agenda or recommend subjects for discussion. Following this meeting, minutes should be prepared and distributed to all of the partners for information purposes.

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John W. Olmstead, MBA, Ph.D, CMC

 

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